When Will Housing Rebound? Sooner (And Stronger) Than You Might Think

The coronavirus pandemic’s impact on the housing and building products industry has been swift and jarring, but recovery and growth to the sector could come quicker than you might think. 

In other words, this won’t be like the crisis of 2008, according to Goldman Sachs’ Terry Hagerty, co-head of homebuilding & building products investment banking.

“Look – we are all human and we are all subject to some recency bias, and I think folks are looking to 2008 and approximating equity market performance and financial performance of the sector to be similar to what they saw then,” Hagerty said during a recent episode of the Exchanges at Goldman Sachs podcast. 

“I will say the environment is much different from my perspective and for a couple of reasons.” 

And what are Hagerty’s reasons? 

• Favorable supply/demand dynamics – Housing supply is quite low compared to 2008 and the demographic tailwinds entering 2020 – with the millennial generation entering an age band where homeownership increases – are still in place. Hagerty expects new home starts to return to 2019 levels in 2021.
• Consumers will be coming on strong – Consumers are in a better position today than they were in 2008. To compare, the household debt to GDP ratio was 99.8% in Q1 of 2008. It was 76.3% in Q4 of 2019.
• Healthy corporate balance sheets – Hagerty has seen a strong balance sheet and liquidity positions of some of his clients in the homebuilding and building products sector. Added Hagerty: “Most of them still have access to capital markets, given some of the Fed action that we’ve seen. And generally, they’re all positioned to weather what could be a potentially very extended downturn.”

As for trends that will emerge from this downturn, Hagerty notes a few key waves that investors should be closely eyeing. 

• Suburb-bound millennials: Simply put, Hagerty thinks that the way the pandemic has impacted the daily lives of city dwellers, especially those of the millennial cohort, could be the catalyst that pushes a large number of them to the suburbs. Work-from-home becoming more accepted can accelerate this. 
• A spike in home repairs and remodels: The logic behind an increase in home repairs and remodels builds on the previous trend. Said Hagerty: “You’ve got a large number of folks who are spending more time in their homes than they ever used to, and they’re looking around at what they don’t like or what they may want to improve.”

Hagerty’s pick for most popular part of the home for repairs and remodels: outdoor living space.

• An increase in smart home technology: Increased technology has been a ubiquitous theme across industrial end markets for the last 20 years, according to Hagerty. When it comes to innovation and technology in the home, Hagerty sees this playing out in everything from material replacements (like replacing traditional wood) to in-home technology (his favorite: electrochromic windows).